Baby, we got a bubble!?

[interested]

Redfirm;
I don't disagree with you looking at Florida but....
If looking in Florida, be prepared to sit at least 5 years for prices to improve to a significant degree.
More shoes to drop there.
Alot of difficulties with US estate taxes, retained foreign rent, high taxes for non homesteaders, managing foreign properties etc.
Not the easiest of investments and then there is the opportunity cost. The C$ may hit $1.10 but you may be waiting a while as well.
It does appear attractive but Prof. Shiller of the Case Shiller Index predicts 5% decline for the US this year though I can't comment specifically about Florida.
I think Ka1 does have a point that it is not so easy to own in Florida.
Just saying.

 

[KA1]

^^^
Ka1;
It is somewhat ironic if you refer to my post in which I said the problem with all the best made plans is that events occur that one cannot possibly predict using sound economic theory or logical business concepts.
"Japan stock crash threatens global markets" is very frightening.
Out of curiousity, why are you cancelling appointments for the day and watching the news. Do you plan to cash out significantly or entirely from the market?
I ask because the rest who may not be as focused as you won't do so.
Remember my other post: Real estate, especially higher end product (and I consider $800/sq.ft. for a condo (2 bedroom) higher end product is dependent on what the stock market does and the wealth effect and how people view their net worth. You saw in 2008-2009 with the threat of a financial meltdown a 15% drop over about 7-8 months in Toronto real estate. What if we start to see another significant decline in the stock markets, perhaps not 50% but say 20-25%. Are people going to feel comfortable plunking down $800K to a million dollars for a property.
My point: psychological mind sets change very quickly and because real estate has been commodisized to a degree; fear and greed and propelling it which in the past was not the case when it was just shelter.
My suggestion; have some money out on the sidelines to buy back in the market(stock) if it goes down significantly and make sure you have your payments for the property you are purchasing secure. Personally, the money for my SL is now sitting in a boring GIC at 2% but I will have the money there (barring the major Canadian bank failing) to close mine.

Cancelling appointments because, I hate to admit it, I am quite a bit nervous -- not about myself, but about the whole world economy and the resulting fall out. Airlines schedules are in a mess -- starting with Japan and the associated disruptions in the other parts of the world, shipping of goods and raw materials in and out of Japan is almost at stand still. That, in turn, will slow down economices in other parts of the world.

My money, like you, is in GIC's. No worry there.

 

[redfirm]

Redfirm;
I don't disagree with you looking at Florida but....
If looking in Florida, be prepared to sit at least 5 years for prices to improve to a significant degree.
More shoes to drop there.
Alot of difficulties with US estate taxes, retained foreign rent, high taxes for non homesteaders, managing foreign properties etc.
Not the easiest of investments and then there is the opportunity cost. The C$ may hit $1.10 but you may be waiting a while as well.
It does appear attractive but Prof. Shiller of the Case Shiller Index predicts 5% decline for the US this year though I can't comment specifically about Florida.
I think Ka1 does have a point that it is not so easy to own in Florida.
Just saying.

Thanks for your post.
I ain't gonna rush. Will take my time to ensure that I'm buying at the absolute bottom(or as close as possible to). Plus exchange rate will play a big role in my decision. If US $ climbs back (see latest news) it changes everything ...
As I said, a close friend of mine is testing the thing with 2 properties right now. My brother in low is possibly moving to live there with his family next year, plus my in-laws expressed desire and interest to eventually move there.
All in all, there are reasons beyond just pure investment / speculation. Over the next couple of years smart middle and upper middle class Canadians will have their chance to buy r/e in Florida for both investment and pleasure
purposes with minimal $$, especially considering the prices here.
Of course, I do realize that Florida is not attractive to everybody and I am not saying that all Canadian investors should do this.

BTW, Interested, can you elaborate briefly re: dificulties with US estate taxes and retained foreign rent. Thanks in advance.

 

[KA1]

http://www.theglobeandmail.com/glob...-tax-uncle-sam-wants-that-too/article1883916/



redfirm, I have pasted a link to an article on US Estate taxes by one Tim Cestnick in The Globe and Mail dated January 26, 2011. You can search more of his articles on the Globe and Mail website. Somewhere along the line he has written an article about earning rental income from US property and steps to be taken to comply with US laws.

 

[interested]

Redfirm I don't know all the rules as I don't rent out my Florida property. However, I believe if you set up a property, a percentage (not sure but 30% seems to come to mind) is withheld in the US. I am not sure you get a total offset. Also with currencies fluctuating so much, you may or may be hit harder in that the writeoff may be more than 30% if the USD appreciates vis a vis the C$.
Managing a property in the US also not so easy. If the tenant bolts, you are 2000km away. If there is a problem, you are an absentee landlord.
There are different structures to avoid some taxes re inheritance but tax laws change and a structure today may not survive tax treatment later. Alot of talk about cross border trusts now. All these things however require a good tax lawyer/accountant and that is expensive.
That said, given your philosphy of buy low, sell high, there may be rationale looking at the US. That said, people 2 years ago would have said prices were low only to have them go a further 10-15% down across alot of the US.
Buying at the absolute bottom is more blind luck with due respect. However, you can buy close to bottom. Personally, I think I would wait until I saw definate signs of improvement; say a 5% sustainable rise. I would rather buy with it going up then trying to catch the falling knife on its way down. Or at least buy at a price where you are comfortable with the rate of return on your investment, don't get greedy, and be prepared to accept that you might leave 5-10% on the table of forgone profit to acheive a situation where you at least are not buying in a declining market.
Good luck with your decision. And budget if I can suggest for rising rates because eventually this has to happen.

 

[KA1]

http://search.irs.gov/web/query.htm...0&rf=0&oq=&qt=1040+NR&search.x=13&search.y=10


redfirm, an addendum to Interested's post re: witholding tax.

There is a 30% withholding tax on gross rent that a rental agent is required to send to IRS. To avoid this 30% withholding tax, one can file a US tax return using' net rental income method', that is actual rent less expenses, using form 1040NR. Due date is June 15 of the year. Similarly, if you sell US property, file a US tax return using form 1040NR.

You most likely will be needing a sort of 'waiver' to avoid 30% withholding tax. You, definitely, will need a US tax account # , similar to SIN No. in Canada.

You can get form 1040 from irs.gov/publications. Somewhere along the line, you will be able to get a phone number to get some advice from an IRS employee -- similar to Canada.

redfirm, I have pasted a link form 1040NR.

 

[urbandreamer]

$indu target: 11100, probably bottoms at 11200 area if weekly trends hold--still bullish weekly--don't see a major correction (3000 points or more) until 2012... On weekly, look for entry when it's oversold--2-4 weeks from now perhaps. Daily 100ma held yesterday...

What it means? Slower sales of luxury new and resale condos etc this month.

Cresford was smart delaying launch of Casa2 until after the storm...

 

[InsideTorontoRealEstate]

Affordability Issues in Toronto

Affordability Issues in Toronto

* About 25% of population paying more than 30% of their Income towards housing (Conference Board of Canada)
* To afford an average bungalow in Toronto at current 5 year rates it would take 46.8% of the average pre-tax income of a Toronto Household (RBC)

Lenders typically want no more than 32% of income towards housing. Will Toronto become too unaffordable to live in the future?

What can we do about it.

Tonight we'll talk with Sean Gadon (Director of Affordable Housing in Toronto) and Neil Hetherington (CEO of Habitat for Humanity Toronto) to discuss housing affordability in Toronto

Tune in and call 416.446.7090 and ask host Brian Persuad all your real estate questions. Inside Toronto Real Estate airs Wednesdays at 7:00 PM only on Rogers TV.

Repeats
Thursday 12:00p

For video and more info check out our web Page http://www.rogerstv.com/itre

 

[interested]

New article in todays Globe and Mail. Unfortunately, can't find it on line but in the print edition:

"Foreign buyeres juice resale housing"
Luxury properties booming even as sales of more modestly priced home wane.

To paraphrase and I apologize for this they say wealthy buyers in TO and Vancouver are propping up the Canadian resale market.

Mainly foreign buyers and bidding up the prices: "In the Vancouver area, 22 homes have sold for $1 million more than their asking price since the start of the year".

I am amazed by this. Over 1 million dollars more than the ask. As a side question; are the buyers crazy? Are the real estate agents all that incompetant that they don't know how to price, or is the market changing that quickly. I have heard of pricing slightly below market to generate traffic and bidding wars, but 22 properties selling over $1million over the ask suggests to me the agents really don't know market value.

resale deals according to CREA have pushed national average resale price to $365K up 5.8% from last January. But strip Vancouver from the equation, and the gains were 3.6% However, sales actually decreased 5.9% from last year and were down 1.6% compared with January.

"The February data may be an early sign that existing home sales may be running out of steam" said Pascal Gauthier senior economist at TD Bank according to the article.

"Things are moving really, really fast in the upper price ranges, said Leah Bach, an agent with REMAX in Delta BC, "But the rest of the market is slower. People are still buying but they are taking the time they need to do inspections and being more selective about what they want. Current sales inventory was 5.7months, up from 5.5 months.

This article is more about Vancouver and out west but still interesting.

Note: they also show that Toronto sales above $1.5million dollars for Jan/Feb: 150 in 2011; 141 in 2010 35 in 2009, 109 in 2008,101 in 2007, then 69 in 2006 and decreasing from there. In other words, record over $1.5 million dollar sales for the first 2 months of the year in TO

As an aside, another article: Quake fallout in Japan hits Canadian mortgages. RBC cut mortgage rates Tuesday due to the earthquake. But market watchers don't expect the reprieve will last. RBC cut 4-10 year mortgages by 0.15percentage points with the 5 year cut 0.1%and the 7 year 0.2%.

Interesting times we live in, that is for sure.

 

[KA1]

Interested, in this doom and gloom environment, you seem to have made it. Your unit in SL should sell like hot cakes and at a high price too.

Now, would you, for a change, post positive comments on this thread?

 

[interested]

Ka1,
I just posted what they wrote. I am perplexed by it. Remember my view is that high end should go up/down with the stockmarket.

I would post positive comments but it is tough when things keep coming out positive and yet I think they should be more skewed in the negative sense.

I guess we write and comment based on our own views. I actually believe what I just posted was positive for the market even if perplexing to me.

As for having made it re SL, I learned a long time ago. You haven't made anything until you sell. A bit like counting your chickens before they hatched.

So did staying home all day to watch the events unfold change your views on anything or cause you to do anything different?

where is CG when you need him. He must be smiling. I guess he would support the article as I believe his target audience is foreign investors.

 

[KA1]

Interested, by staying close to TV made me realise that, in a few months time, world economies will be going slow and unemployment high -- not a good future for individuals who will be laid off and, definitely not good for real estate and other sectors of the economy. I have pasted a link to the front page of the Report on Business of The Globe and mail. Air Canada retrenching and possible increase in interest rates in US. You can figure out the consequences on Canadian economy. But stay in good spirits. Your investment in Shangri La will pan out.


http://www.theglobeandmail.com/report-on-business/

http://www.theglobeandmail.com/repo...edy-sparks-fears-for-recovery/article1943415/

 

[interested]

I appreciate you staying so positive but Ka1, the last post was kind of a negative view from you, isn't it?

Anyhow, we are too close to it.

I will be away next week so I will play catchup in early April.

 

[desmo]

While this discussion goes far deeper than Im willing to go, and has great points on every side, I must say that I am not convinced by the evidence of a relatively near bubble burst. The rationale I have, while rooted in some econ theory, has more to do with 4 Fs;

Food, fertilizer, fuel and forestry. These are the things that Canada has, and few, if any, country has all of these as well. Less still when you limit that potential pool of countries to stable, healthy econonmies that have great relations with most major trade partners. While this has no obvious connection to the real estate discussion above, i find it hard to believe that Canada, the nation that will be looked upon as supplying China's, the US's and even Japan's future growth (or perhaps regrowth in Japans case) in what is the 4 most fundamental and valuable resources, will be unable to fuel demand for its real estate market. While real estate jurisdictions like Alberta, BC, Quebec and even Saskatchewan will likely benefit the most from this, eventually most of the money finds its way back to Toronto, even if that money leaves Canada eventually.

By no means am I advocating that there will be no stagnation of prices in the short term, nor am i saying that a bubble is impossible. What i can say is that the conditions that led to the drop in Florida shares little if not correlation to what is occuring in Canada or Toronto. I think many of the old guard in Canada will have to get used to the decoupling of the US and Canadian economies going forward, as Europe and Asia look to Canada for resources. The interest Canada is getting (in a foreign investment context) from places like London, China and the rest of the world (TSX/LSE merger, just about every law firm in the world is looking at gaining a stornghold here, the insurance mergers, Potash, ect...) is going to have no small impact on the demand for real estate here.

Often times, im reminded of a professor who used to tell me to stop looking at trees, and start looking at forests. He wasnt talking about the forestry industry.

 

[daveto]

While this discussion goes far deeper than Im willing to go, and has great points on every side, I must say that I am not convinced by the evidence of a relatively near bubble burst. The rationale I have, while rooted in some econ theory, has more to do with 4 Fs;

Food, fertilizer, fuel and forestry. These are the things that Canada has, and few, if any, country has all of these as well. Less still when you limit that potential pool of countries to stable, healthy econonmies that have great relations with most major trade partners. While this has no obvious connection to the real estate discussion above, i find it hard to believe that Canada, the nation that will be looked upon as supplying China's, the US's and even Japan's future growth (or perhaps regrowth in Japans case) in what is the 4 most fundamental and valuable resources, will be unable to fuel demand for its real estate market. While real estate jurisdictions like Alberta, BC, Quebec and even Saskatchewan will likely benefit the most from this, eventually most of the money finds its way back to Toronto, even if that money leaves Canada eventually.

By no means am I advocating that there will be no stagnation of prices in the short term, nor am i saying that a bubble is impossible. What i can say is that the conditions that led to the drop in Florida shares little if not correlation to what is occuring in Canada or Toronto. I think many of the old guard in Canada will have to get used to the decoupling of the US and Canadian economies going forward, as Europe and Asia look to Canada for resources. The interest Canada is getting (in a foreign investment context) from places like London, China and the rest of the world (TSX/LSE merger, just about every law firm in the world is looking at gaining a stornghold here, the insurance mergers, Potash, ect...) is going to have no small impact on the demand for real estate here.

Often times, im reminded of a professor who used to tell me to stop looking at trees, and start looking at forests. He wasnt talking about the forestry industry.

Desmo, thanks for your post. While I appreciate the thought you have put into your rationale, if I can borrow a sentence from your post, I think this argument doesn't hold water if one "... stops looking at trees, and starts looking at forests".

The simple fact is the the money hasn't come back to Toronto, nor to anywhere else in Canada. Incomes have gone up by 10% over a decade when house prices have doubled (in real terms).

If one ignores the forest of many "special" trees which make us different, and look at the big picture, then it is clear that something has to give. At present price-to-income is 5-to-1 nationwide (long term average is 3 to 3.5-to-1). Similarly, rental cap rates are in the 2-3% net range before inflation.

Prices have risen to their current level because of a generational bull market in bonds, which has brought rates down from the highs of the 1980s to the lowest point in history (and thus the cheapest mortgages). At the same time over the past 10 year, the role of the CMHC has been dramatically increased through much more accommodative (and politically popular, ahem) guidelines on amounts eligible for insurance, and through much greater use of securitization. All of the above has served as an accelerant to the marketplace. As we have now exhausted our cupboard of accelerants, it should be pretty clear what happens next.

Once again, I really do appreciate the thought you put into your post. But you're basically saying "It's different here", and history has shown that is the last gasp of a bubble marketplace. My 2 cents.l